THE CATO CORPORATION

The Cato Corporation caters to fashion-minded Southerners on a budget. The retailer operates more than 1,300 apparel stores in 30-plus states (primarily in the Southeast) under the names Cato, Cato Plus, Versona, It's Fashion, and It's Fashion Metro. Its mostly private-label merchandise includes misses', juniors', girls', and plus-sized casualwear, career clothing, coats, shoes, and accessories geared to low- and middle-income customers, mostly females aged 18 to 50. Cato's stores are typically located in shopping centers anchored by a Wal-Mart store or another major discounter or supermarket. Founded in 1946, the company is led by chairman John Cato, the third generation of Catos in the family business.

Operations

Cato Corp. operates two business segments: Retail, which includes its 1,300-plus stores and accounts for 99% of the company's sales; and Credit. To make purchases more convenient, Cato offers a layaway program and its own credit card. The company estimates that 10% of purchases made in its stores involve its branded credit card and layaway program.

Sales and Marketing

The company purchases its merchandise from about 800 suppliers and 100 vendors.

Cato's advertising, which includes television, in-store signage, graphics, e-commerce websites, and social media, has fluctuated between $5.7 million in 20014 to $7.1 million in 2012.

Financial Performance

The company's revenue dropped 3% in fiscal 2014 to $920 million from 2013's $944 million. Cato points to a $23.3 million decrease in retail sales and a 7% decline in other income for the sales decreases. Cato logged a 12% lower profit of $54.3 million in 2014 vs. $61.7 million in 2013, driven by sales declines and increases in selling, general, and administrative expenses.

Strategy

The company enjoys a strong presence in the Southeast, and it has plans to fortify its footprint in the Northeast and Midwest, as well. In the meantime, Cato has been adding retail outlets in existing markets and right-sizing its network by relocating stores and closing underperforming locations. The retailer's newest banner, Versona Accessories, debuted in 2011. Versona stores aim to capitalize on higher demand for jewelry and accessories (as opposed to apparel). The stores also sell shoes and handbags.

In addition to offering on-trend apparel for women and girls, Cato has been making strides to get the rest of the family into its stores. The retailer's It's Fashion chain offers men's and boys' clothing, while It's Fashion Metro carries outfits for infants and home decor. By offering a mix of affordable items for the whole family, Cato believes it can better differentiate itself from other department stores and discounters.